Corporate sustainability
strategy, resilience
and competitiveness

Lloyd Macfarlane

For many companies, the word ‘sustainability’ conjures up negative connotations. It’s all about compliance, box-ticking, advisers with hairy socks and sandals, and a glossy annual report which, once written, is filed away and forgotten about. Lloyd Macfarlane, of management consultancy PSP-Icon, believes that view is wrong. In fact, Macfarlane argues that approached strategically, corporate sustainability can deliver both resilience and competitive advantage, leading to increased long-term profitability.

Macfarlane says that many people still regard sustainability to be about environmental, or ‘green’ issues. “It is still about resource efficiency, cleaner production, energy, water, waste materials and green building.” Which is fine and important, he says, but it’s also about strategy and innovation – sustainability can be used to position companies for both resilience and competitiveness.

“It’s seldom that you find a company that is not looking to address one of those two things. Resilience can mean future-proofing the business by viewing the business model, the strategy and other fundamentals through certain lenses, and then closing gaps and aligning everything with the management approach. Strategic objectives must reflect the material issues of the business and be relevant for key stakeholder groups. This creates a much more integrated and sustainable operation,” explains Macfarlane.

Investors are looking for long-term value creation…

Tools

One method used by Macfarlane is the examination of the company’s business model using the Six Capitals, which is one of the tools promoted by the Integrated Reporting movement. The Six Capitals are categorised as financial, intellectual, human, natural, manufactured and social and relationship, which together represent stores of value that are the basis of an organisation’s value creation.

“We look at what inputs go into the business, what outputs emerge and what the outcomes are. Then we can look at how well, within that framework, the business is positioned for risk and opportunity,” says Macfarlane.

Another strategic tool he employs is to view the business through the extended value chain.

“Here, depending on what sector the business is in, we examine products, services and activities from raw material extraction, right through to ‘end of life’. We map the profile of that organisation and the impacts that occur along the way. This allows us to see areas in which mitigation needs to take place or value needs to be created across the entire value chain, even beyond the boundaries of direct control. In this way, corporate sustainability is far more than a box-ticking exercise or just applying a framework. It is the integration of environmental, social and governance strategies, and management of those strategies across the organisation’s value chain. This approach exposes companies to their own business case, which drives innovation and competitiveness,” notes Macfarlane.

Drivers

Several factors are helping to drive this process in South Africa at the moment, according to Macfarlane.

“Carbon reporting and carbon tax are a big focus now, with the imminent introduction of a carbon tax. There is also global pressure on nations to reduce industrial emissions. South Africa has already promulgated the National Greenhouse Gas Reporting Regulation, which obliges certain companies to report on their emissions and, subject to what those emissions are, pay a carbon tax priced at R120 per ton of CO2e. My estimation is that less than 2 000 companies will pay that tax, but at least another 10 000 might be well advised to understand the minimum thresholds and to position themselves so that they’re not at risk if the thresholds change. This can be done by conducting a carbon footprint audit that helps to identify emissions sources, tax liabilities and opportunities for efficiency.

Another important driver is the investor agenda. Investors are looking for long-term value creation and an increasing number of stock exchanges, including the JSE, require an Integrated or Sustainability Report as a listing requirement. State-owned enterprises in South Africa are now also required to produce an Integrated Report. Key here, says Macfarlane is the alignment or integration of the reporting processes into the strategy of the business. Reporting poorly can sometimes be worse than not reporting at all.

“This is where meaningful business case benefits and advantages can emerge. Certain companies listed on the JSE, outside of the Top 40, or on the AltX, are engaging us around our Resilience Package, which uses an Integrated Reporting approach to close gaps and integrate the strategy, giving the company a more relevant performance lens and a more credible long-term value creation narrative for investors.

“We’ve had some high-profile examples of ‘short-termism’ in South Africa over the last few years and savvy investors, who understand the meaning of long-term value creation and responsible investing, are using reports to establish if companies are strategically integrated or just checking boxes.”

Belgotex

One client of PSP-Icon that has adopted a long-term value approach with considerable success is Pietermaritzburg-based flooring manufacturer, Belgotex.

“Belgotex is a market leader. They have looked down the value chain and done as much as possible to mitigate impacts. They’re deriving huge advantages in terms of innovation, differentiation and reputation and this has positioned them for market dominance,” says Macfarlane.

Digging a little deeper into Belgotex’s success story, he explains that the company has an initiative to recycle both at a production and consumer waste level. Instead of waste being destined for landfills, they bring it back into production, reprocess it and restore value to it as a raw material. Recycled materials help to reduce the impacts of raw material extraction and the carbon emissions associated with production.

A second example is the solar array on Belgotex’s rooftop: “They were looking to reduce emissions and electricity consumption, so they installed solar panels on top of the factory roof. This has resulted in meaningful savings and the carbon emissions avoided over a two-year period have been linked to the company’s greenest carpet range which has resulted in more than 200 000 square metres of flooring that is now effectively carbon neutral. In a highly competitive sector this provides a valuable point of differentiation for the company, as it targets customers that are themselves looking to make responsible purchasing decisions.

“Imagine the competitive advantage this gives Belgotex when approaching a large corporate trying to install nine stories of flooring. Your competitor comes in at the same price, but your product is carbon-neutral – and you can pass that value on to the client! This kind of innovation and competitiveness epitomises the benefits associated with long-term value creation,” says Macfarlane.

…sustainability can be used to position companies for both resilience and competitiveness.

RPC Astrapak

Another example he cites is packaging giant RPC Astrapak.

“They operate in a sensitive industry – plastic has very high carbon emissions when processed in virgin state, and there are some serious waste impacts that the industry is managing. RPC Astrapak has a zero-waste-to-landfill objective, and 100% of production waste is currently being recycled. In addition, the company’s carbon footprint has been reduced significantly since 2015, through Resource Efficiency and Cleaner Production practices, but also by using recycled materials. There is a focus on the life cycle of plastic, including large investments and collaboration with industry organisations to build the recycling industry and increase consumer awareness around pollution.” says Macfarlane, stressing this began not as a compliance issue, but as a voluntary decision by a long-term investor intent on creating shared value.

“PSP-Icon’s expertise lies in taking tools like carbon foot-printing, sustainability and integrated reporting, helping companies like Belgotex and RPC Astrapak interpret and apply the results, and in so doing, creating both resilience and competitiveness. We are working with our shareholder audit, accounting and consulting firm, Nexia SAB&T to drive these principles into the public sector too – consulting with state-owned enterprises and local government. It certainly feels as if there is a new appetite for sustainable change,” Macfarlane concludes.

The idea for the campaign was as a result of having identified GIBS as a strategic partner as we were exploring the idea of aligning our brand with one that is world renowned for its professionalism and focus on people development. We felt there were a lot of synergies because Nexia SAB&T is a firm that invests in our people throughout their careers. GIBS having seen that we shared similar values offered us the opportunity to get involved with the Bambanani Car Wash and consider taking them on as our Enterprise Development beneficiaries.

Nexia SAB&T having over the years been directly involved in the upliftment of entrepreneurs decided that this would be a perfect fit for us and so on the 1st May 2018 we embarked on a campaign to provide the young entrepreneurs with eco-friendly car washing machines fully equipped with detergents and cleaning materials. We also provided clothing and branding which increased their visibility to the GIBS students and will continue to assist with mentorship and guidance over the next 2yrs. The goal being that at the end of our agreement we have been able to provide the entrepreneur with market linkages and support to ensure business sustainability. These young entrepreneurs will be better equipped to branch out and continue to provide a world class service having been coached and capacitated by us.

Nexia SAB&T recognises the importance of partnerships between educational institutions and employers and the use of resources of both the private and public sector drivers in deepening and transforming the economy. WE continue to strive towards our goal of inclusive economic growth and development, and to contribute fundamentally in reducing unemployment and poverty in line with the National Development Plan (NDP), the New Growth Path (NGP).

We believe that in order to get ahead, the South African economy is in urgent need of more entrepreneurs to boost growth, foster innovation, and aid in job creation. The reality is that much more must be done to create an enabling environment for entrepreneurship to truly flourish. Nexia SAB&T is committed to being a major driver towards this change as we understand that countries with high rates of entrepreneurial success need to have effective support structures from private and public sectors as well as established mentorship programmes for both aspirant and current entrepreneurs.

When a business or a person is unable to pay their debts when they become due, they are considered to be insolvent. The business model is quite simple; when the money going out is more than money coming in, debts are accrued and the liabilities exceed the assets.

Sequestration

A debtor may apply for their personal estate to be sequestrated by way of voluntary sequestration or it can be sequestrated by a creditor by way of compulsory sequestration. The two most important components of applying for sequestration is that a liquidated claim should exist and an act of insolvency should be proved to have been committed.

The applicant must prove that the sequestration will be to the advantage of the general body of creditors who will ultimately receive a dividend from the proceeds of the estate. This would all form part of the Notice of Motion brought before a judge of the High Court who holds jurisdiction.

Once the final sequestration order has been granted by the High Court, the case is referred to the Master of the High Court who holds jurisdiction. The Master will then appoint an Insolvency Practitioner listed on their National Panel either by way of nomination or make a discretionary appointment. Sufficient security needs to be provided to the Master of the High Court to defray all sequestration costs until such time that a Practitioner is appointed. All estates vest under the care of the Master of the High Court.

Insolvency Practitioners

The appointed practitioner will attend to all the administration to wind up the estate as quickly and efficiently as possible. A great deal of communication exists between the Practitioner and the creditors throughout the administration of the estate. The practitioner will collect claims, sell the assets and maintain the finances of the estate throughout the process. The Practitioner is then obligated to frame and lodge a Liquidation Account with the Master of the High Court setting out the financial situation of the estate. Should all creditors as well as the Master be satisfied with the contents of the Account, the Master will confirm the account and dividends, if any, will be paid out. In the event of a contribution being levied, the Practitioner will enforce the necessary steps to collect same. They will then proceed to finalise the winding up of the estate.

Application for Rehabilitation

The ordinary time when an application for rehabilitation by court can be made is four years after sequestration. The period in a particular case would depend on:

When the first account was confirmed

Whether the Insolvent Estate was previously sequestrated

Whether the Insolvent has been convicted of certain offences

Whether the Master recommends rehabilitation

In certain cases the insolvent may apply much earlier if:

After giving six weeks’ notice no claims were proved against the estate within six months from the sequestration date, the insolvent has not committed certain offences, and the estate has not been sequestrated previously

After the confirmation of the account providing for the payment in full of all claims of creditors with interest thereon.

Liquidation of Companies, Close Corporations and Incorporations

This is the process which precedes the dissolution of an entity. The affairs of the company are administered by tracing and taking control of assets for the payment of creditors according to their ranking of preference and the distribution of the residue amongst the shareholders according to their rights.

Types of Liquidation

Voluntary winding up may be of a solvent company or an insolvent company. Both types of voluntary winding up require the signed resolutions by members / directors which needs to comply with the following; It must be clear from the resolution that:

It was a special resolution,

Adopted by the members or directors,

Which provides for a creditors’ winding up of an insolvent company, or

Which provides for the voluntary winding up on a solvent company.

The Company, a creditor, a shareholder or a certain official may apply for the compulsory winding up of a company. The circumstances under which the company may be wound up includes:

Inability to pay debts, or

It appears to the courts that it is just and equitable that the company should be wound up.

Winding -Up

A provisional winding-up order is usually issued in the form of a rule nisi. Interested parties are invited to appear on the return date and advance reasons for the final order not to be issued. If no such reasons can be given, the court will proceed to issue the Final Liquidation Order.

Security for costs must be lodged until the appointment of a provisional liquidator. The application needs to be accompanied with a certificate from the Master of the High Court confirming that security has been lodged. A copy of the application must be served on the following:

The Master of the High Court

Registered unions

Employees

South African Revenue Service

The company will no longer be under the control of its members or directors but rather first in the Master of the High Court and then in the appointed liquidators.

Important consequences of Liquidation include:

Transfer of shares after liquidation are void

Change of status of Company or the members without approval of liquidator is void

Disposition of property, including claims after commencement of liquidation is void

All legal processes are suspended

Realisation of Assets

The appointed liquidator will proceed to realise all assets vesting in the Company and liquidate same in order to generate sufficient funds for the payment of the administration costs as well as payment of dividends to proven creditors. All creditors need to prove their claims at the official Creditors’ Meetings convened by the Master of the High Court and the appointed Liquidator.

All funds arising from the liquidation of a company need to be paid to an estate bank account which will be managed by the appointed Liquidator under the care of the Master of the High Court.

Nexia SAB&T’s Insolvency Services

Nexia SAB&T offers administration of deceased estates, both testate and intestate as well as the administration of Insolvent Estates and Liquidated Companies and Close Corporations.

Nexia SAB&T received various appointments within the Liquidation and Insolvency Industry over the years including complex and high profile estates. Our Liquidation and Insolvency department currently has eleven liquidators on the Master of the High Court’s National Panel of which five are Senior Practicing Liquidators.

Nexia SAB&T received its very first appointment in early 2003 and has developed a fully equipped Insolvency division since then.

We have a qualified and experienced Insolvency and Deceased Estate Practitioners and Insolvency Administrators, acting as assistants and consultants to all our liquidators.

Nexia SAB&T has offices in all nine South African Provinces and take appointments nationally.

Contact Us
www.nexia-sabt.co.za
Contact: +27 21 596 5400

Disclaimer
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future, and, to the extent permitted by law. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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